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OpenTable sells online tools and services for restaurant reservations and reviews. The company went public in 2009.
OpenTable does basically two things:
- sell restaurants tools to manage reservations, and
- operates an online reservation service, both on its site and through partner sites. The reservations are free for consumers but restaurants pay a fee for reservations that go through OpenTable.
OpenTable also has apps and says reservations via mobile have been increasing, and are bringing in more business for its partner restaurants. The company says more than 7,000,000 people have made reservations through their mobile apps. (This isn’t necessarily so meaningful–many of those reservations might have been made anyway, even without a mobile app–but it’s an indication of how convenient the app is.)
Here’s what the OpenTable website looks like for the consumer:
OpenTable’s services (website, mobile apps, etc) are completely free for the approximately 6.5 million diners seated a month through OpenTable (2010). Customers can also accumulate points by making reservations that can be used for discounts later.
So how does OpenTable make money?
OpenTable makes most of its money from selling its reservation tools to restaurants.
The company currently offers two main services to restaurants:
1. OpenTable Electronic Reservation Book
The “ERB” is a computer terminal. It comes with software that allows online reservations, helps run front-of-house business in restaurants, like seating arrangements and waitstaff assignments and takes notes like information on frequent customers.Restaurants pay a one-time fee for installation and training costs (which ranges from $200 to $700, according to the company), and a monthly subscription fee also applies (minimum $199 per month, with extras costing $25 to $89 a month). OpenTable also gets a fee for each diner who completes her reservation: $1.00 per diner for reservations made through OpenTable’s website or mobile app, and $0.25 per diner for reservations made through the restaurant’s website using OpenTable software.
2. OpenTable Connect
Connect is the lighter version of the company’s reservation system, which is purely a web-based system that enables restaurants to accept online reservations. The company says it aims this product at restaurants who normally rely mostly on walk-in customers. From restaurants with the Connect system, OpenTable receives a fee for each diner who completes his reservation. It receives $2.50 per diner who reserves through OpenTable’s site, and $0.25 per diner for reservations made through the restaurant’s site using OpenTable software.
There are other extras that restaurants can opt in to, for a fee, to gain greater exposure through OpenTable:
- Member restaurants can pay extra fees to be featured on OpenTable.com as part of its POP program or to be part of email marketing campaigns. OpenTable receives much more per diner ($7.50) if a restaurant opts to be featured as a “1000-point” restaurant, which rewards diners with extra reward points for making reservations at certain times.
- The Spotlight program sells discount restaurant coupons to consumers. The revenues from coupon sales are split between the restaurant and OpenTable.
Photo: data from opentable.com
So how much revenue do these products generate?
The company’s revenue breaks down roughly in half between per-diner reservation fees and subscriptions. There are some other revenue sources, like ads on OpenTable.com. (See chart at right.)
More recently, in the first half of 2011, revenues were up compared to last year at the same time: the number of restaurant customers increased 27% in North America and 276% internationally to a total of about 20,000. Revenues increased substantially over both periods, as well. OpenTable says its 20,000 restaurants are only about 9% of the possible market it could reach, and that it has big growth potential among restaurants who don’t yet have their system– but there’s no way of knowing how many of those restaurants could or would actually make use of the company’s products.
Photo: data from opentable.com
OpenTable also partners with many other sites, including Menupages, Google, and Yelp and places a reservation button next to those sites’ listings. (See example screenshot below.)
OpenTable’s online business model is simple: it matches people looking for a place to eat with restaurants that want customers, and also allows online reservations directly from restaurants’ own websites.
And what value does it add for restaurants? OpenTable says that it takes the average restaurant just three reservations through its system to make up for the fees it charges restaurants. The company also says that it fills seats that might otherwise go empty when it lists available reservation times on its site. In addition, restaurants get exposure on its site they might not receive otherwise by only hosting their own websites.
But there are potential drawbacks for restaurants, too. As we reported earlier, some restaurants feel like they get a raw deal: the subscription fees for OpenTable are fixed every month, no matter how many diners the service does or doesn’t draw. Some restaurants feel forced to join OpenTable just to be able to compete. And as one restauranteur has pointed out, OpenTable also owns all the customer data saved on its hardware, meaning that if a restaurant cancels its subscription, they no longer have any of that valuable information. That’s a big loss in an industry that relies heavily on knowing patrons’ information and dining history.
There’s also more competition coming: a proliferation of other restaurant discount sites and cheaper reservations software (everything from Groupon to North American newcomer Eveve (which has directly challenged OpenTable’s model here), and social networks that are seeking to incorporate similar features into their own sites. Building personal websites and databases is becoming easier all the time for the average business, too: there’s nothing stopping competitors from building their own, cheaper reservations systems. Sites that already provide dozens of reviews of restaurants seem ripe for this kind of potential competition (see: Google’s purchase of Zagat).
All of this may threaten OpenTable’s dominance in this market. The company’s newest effort, the cheaper and “lighter” Connect service, is likely a response to increasing pressure from rivals and tough overall economic conditions for the restaurant industry.
Even so, the company is quite profitable, with a recurring revenue stream: Last year the company’s margin profit doubled to 14%.
For now, OpenTable remains the dominant restaurant reservations system in North America and has a strong showing in Europe, as well. If it can adapt to new competition and be flexible about its subscription plans, it has both the name recognition and the head start to remain the leader of the pack.
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